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US competition regulators are tightening their scrutiny of mergers of private equity portfolio companies. Could antitrust regulators soon be coming for alternative asset managers themselves?
That question is prompted by the plan of buyout titan TPG to spend $2.7bn in cash and stock on the specialist credit and real estate manager Angelo Gordon.
Assets managed by the listed private capital stalwart will go from $135bn to just over $200bn. It said pensions and sovereign wealth funds increasingly want one-stop shopping when allocating capital between buyouts, fixed income, real estate and the like. In particular, investors have developed a taste for insurance affiliates.
TPG is implicitly admitting the deal is a way of keeping up with the likes of Blackstone and Apollo, whose asset bases are approaching $1tn each.
It is understandable why external investors with limited monitoring capabilities prefer to engage with a small number of diversified alternative asset managers.
Consolidators, particularly ones that are publicly traded, have incentives, for their part, in simply growing their asset bases and gross management fee revenues. They may also be able to sell bundles of their funds to pensions and wealth funds.
The challenge is to ensure that they do not overpay for growth and similarly, that incoming executives remain motivated.
Firms seeking to grow do not have to rely on full acquisitions. They can hire small teams or redeploy employees to build strategies organically. But such efforts are time-consuming and difficult. Some asset classes require specialist backgrounds or track records.
Huge growth in the alternative asset industry has created demand among traditional asset managers looking to get their slice of the action. Even TPG or Carlyle Group with $400bn in assets under management could be a target for the likes of BlackRock, Fidelity or a sovereign wealth fund.
As alternative asset managers grow in size, so will concerns about concentrations of power in the industry.
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